Asia Cement (China) Holdings Corporation (0743.HK) is one of the leading manufacturers of cement and concrete in China. China is the largest cement producer in the world with an output of 2.2bn tonnes.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] Almost 90 percent of Asia Cement China’s sales are high-grade cement. On the long-term, the company is confident that China’s economy remains bright and that infrastructure projects such as intercity transportation, logistics, and municipal infrastructure facilities will give sufficient potential for future development in China. However, China’s economic growth might slow down this year, and decreasing property investments will reduce the demand for cement.
Asia Cement China was incorporated in 2004 and is headquartered in Jiujiang, China. The company is listed on the main board of Hong Kong’s stock exchange since 2008. Its shares can also be traded in Germany and the US. Major shareholder is the Taiwanese Asia Cement Corporation, which is a subsidiary of Taiwan-based Far Eastern Group, with ownership of around 72 percent. Twenty-seven percent of the shares are in public hand.
With a workforce of almost 3,900 employees, Asia Cement China reported revenues of 11.3bn RMB (1.7bn USD) and profits before tax of 3.4bn RMB (496m USD) in 2018. This is an increase of 45 and 244 percent respectively compared to the same period a year ago. However, the increase is mainly due to higher selling price in 2018. Total sales volume rose by only 2.5 percent last year. In 2017, revenues and profits increased by 23 and 198 percent respectively. The operating margin of about 33 percent is well above industry average. Asia Cement China’s cash reserves increased by 433 percent to 5bn RMB (734m USD) last year, while debts also increased by 35 percent to 6.6bn RMB (972m USD).
Asia Cement China shows a solid balance sheet with good profitability and financial strength. The equity ratio is at 60 percent and the gearing, defined here as total liabilities to total equity, at 67 percent. Moody’s daily credit risk score for Asia Cement China is five, which stands for medium risk, based on the day-to-day movements in market value compared to the company’s liability structure. Next earning results will be announced mid of August.
Asia Cement China’s shares are in an uptrend since June 2016 and gained more than 600 percent in value since, 77 percent increase alone this year. The company is priced at five times earnings, 1.1 times book value and at five times cash flow. The forward dividend yield more than 7 percent. The two covering analysts have currently a ‘buy’ or ‘outperform’ recommendation on the stock.
Our conclusion: Asia Cement China shows a healthy balance sheet with excellent profitability and financial strength. The valuation is low and comes with an average growth rate for revenues and profits of 19 and 72 percent respectively over the last three years. The outlook for the construction industry in China is positive with an expected growth rate of around six percent over the next two years.
The company is well positioned in a strong competitive environment. Assuming a stable global economy, we expect the share price to increase 10 to 15 percent until the end of this year.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
|---|---|---|---|---|---|---|
| EPS (RMB) | 0.53 | 0.51 | -0.19 | 0.09 | 0.38 | 1.55 |
| Change | 108% | -4% | -138% | 145% | 352% | 302% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 5.5 | 34 | 1.1 | 5 | 60% | 22% | 67% | 7.5% |
* Equity / Total Assets, ** Total Liabilities / Equity
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